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Proposed regional energy efficiency standards for residential propane and natural gas furnaces are set to be withdrawn and sent back to the drawing board.

The U.S. Department of Energy (DOE) had set minimum energy conservation standards for gas furnaces in June 2011. The regulation, which would have taken effect May 1, 2013, would have essentially required high-efficiency condensing furnaces in the North by setting the minimum annual fuel utilization efficiency (AFUE) standards at 90 percent. It also would have increased the minimum efficiency to 80 percent in the southeastern and southwestern regions, up from 78 percent.

The DOE agreed to withdraw the standards on January 11 in a settlement with the American Public Gas Association, which filed a lawsuit to stop the regulations. A judge must still approve the settlement, however, leaving HVAC pros and furnace manufacturers and distributors on edge as they await the judge’s decision.

“There are a lot of people right now who don’t know what to do because this case is ongoing,” says Charles McCrudden, vice president of government relations for the Air Conditioning Contractors of America, noting that the judge’s decision may not come until March.

“What we have been counseling our members to do is operate under the assumption that May 1, 2013, will come and 90 percent furnaces will be required in the northern region,” McCrudden says. “Should the settlement be accepted, then the minimum efficiency standard for non-weatherized [indoor] residential furnaces will remain at what it currently is today, which is 78 percent.”

The settlement would give the DOE two years to finalize a new minimum energy conservation standard for furnaces, and that likely wouldn’t go into effect until 2019 at the earliest. If the agreement is approved, industry professionals believe it could have a wide-ranging impact across the building and remodeling industries. As written, the energy conservation standards would have presented a number of challenges for contractors and suppliers alike.

One major effect will be on the inventory of non-condensing furnaces in the North. The standards would have outlawed lower-efficiency furnaces in the North by date of installation, instead of date of manufacture, which could have left contractors and suppliers with stranded inventory after May 1. Companies would have been forced to attempt to redistribute lower-efficiency furnaces to the South, and some non-condensing furnaces configured only for northern heating capacities would have been completely obsolete.

Another major issue with the standards was the lack of a waiver process for difficult installations. Non-condensing furnaces are vented differently than more efficient, condensing furnaces, and in some homes, installing a 90 percent efficient furnace can be economically or practically impossible. In a center townhouse or low-rise condominium, for instance, a condensing furnace can’t simply be vented out the side of a home instead of the chimney. Such installation concerns can increase the cost difference between a high-efficiency and mid-efficiency furnace from approximately $1,000 to more than $3,000.

Ellis Guiles, Jr., vice president of Syracuse, N.Y.-based HVAC contractor and energy services company TAG Mechanical Systems, estimates such installations make up between 2 percent and 10 percent of the company’s business volume. But cities along the northeast seaboard would have a higher concentration of problems, he predicts.

“When you start getting into some of these older homes and older buildings, there’s just not logistically cost-effective ways of [installing a high-efficiency furnace],” Guiles says. “You may have been forced into putting in some sort of heat pump technology if you couldn’t vent it, and so you’d have had to switch the people from gas or propane to electric.” In some cases, he adds, that would be less efficient than installing a mid-efficiency furnace.

A third challenge was uncertainty in how the regulations would be enforced. The DOE created only general frameworks for potential enforcement policies, McCrudden says, and some of the approaches could have instituted paperwork and reporting requirements for distributors and contractors. Contractors feared information about their customer list might become public or fall into the wrong hands, he says. “The contractor community can be very skeptical about information reporting and recordkeeping requirements like this.”

Efficiency opportunity

With so many concerns about the rulemaking process, many contractors see the potential withdrawal of the rules as a positive outcome. “I didn’t think the DOE had taken in enough stakeholder consideration in the process,” Guiles says. “At a national level, having it go back through the process makes a lot more sense to me.”

On the other hand, Guiles says the regulations likely would have had little impact on his firm’s day-to-day business. “You have contracting firms like ours that are extremely focused on energy efficiency and helping people lower their costs to operate their homes and their buildings,” he says. “We’re pretty successful in convincing people that the right thing to do is to put in high-efficiency furnaces.

“There’s the other side of the contracting model, where they think the only thing the customer’s interested in is price. If they’ve got an existing mid-efficiency furnace, they sell them a mid-efficiency furnace, and that just tends to be their mindset. The regulations would have caused them some grief and aggravation because it would have forced them into doing something that isn’t part of their standard business model.”

The withdrawal of the efficiency standards would make it even easier for quality builders and contractors to differentiate their offerings, says Quan Nguyen, Lennox’s director of product management covering heating products.

“A builder that puts in a smart, 98 or 97 percent efficiency furnace is able to differentiate from the low-end, 80 percent efficiency furnace,” Nguyen says. “There is a big gap there numerically. It keeps an ability to say, “Hey, the operating cost of our home is going to be so much lower than a standard 80 percent furnace,'” rather than comparing it with a 92 percent standard.